Challenge to IRS Filing Program Dismissed - AICPA Can't Prove Risk of Injury.
(Parker Tax Publishing November 9, 2014)

A federal district court dismissed the AICPA's challenge to the IRS's new Annual Filing Season Program, rejecting a myriad of theories claiming that the program would cause injury to AICPA members. AICPA v. IRS, 2014 PTC 555 (D. D.C. 10/27/14).

In 2011, the IRS issued regulations that mandated testing and continuing education (CE) for paid tax return preparers and created a Registered Tax Return Preparer (RTRP) credential. The RTRP designation was for preparers with valid preparer tax identification numbers PTINs, who passed an IRS competency test, and completed 15 hours of CE. However, in 2013, the D.C. Circuit Court of Appeals upheld the D.C. district court's holding in Loving v. IRS, 2013 PTC 10 (2013), that the IRS regulations mandating competency testing and CE for paid tax return preparers were invalid.

In the wake of the courts' rejection of the RTRP program, the IRS announced a new voluntary program, called the Annual Filing Season Program (Program), which it designed to encourage education and filing season readiness for paid tax return preparers. The program is scheduled to be in place for the 2015 filing season. Shortly after the IRS announcement, the American Institute of Certified Public Accountants (AICPA) filed a lawsuit in the D.C. district court alleging that the Program constitutes arbitrary and capricious agency action promulgated in excess of the agency's statutory authority. The IRS moved to dismiss the complaint, contending that the AICPA whose membership consists of individual CPAs and accounting firms, rather than uncredentialed tax preparers lacks standing to challenge the Program.

The AICPA put forth three theories for why it was entitled to bring suit against the IRS regarding the Program. It claimed that its members:

(1) employ uncredentialed tax preparers who will be injured by the additional regulatory burdens created by the Program;

(2) will be directly injured by the Program because it requires firms to take reasonable steps to ensure that their newly regulated employees comply with Circular 230; and

(3) will suffer injuries because the rule will cause confusion among consumers.

To have standing to sue: (1) a party must have suffered an actual or imminent injury; (2) there must be a causal connection between the injury and the conduct complained of; and (3) it must be likely that the injury will be redressed by a favorable decision.

The court held that the AICPA did not have standing to sue the IRS over its implementation of the Program, and dismissed the case. The court noted that the AICPA's first argument was a nonstarter, as an employer does not have standing to bring claims based on the injuries of its employees. Additionally, any injuries to the employees that might affect employers in the form of reimbursed compliance costs would be self-inflicted, as employers are not required to reimburse the cost of voluntary compliance with the Program.

Next, the court pointed out that the Program would not increase any AICPA member's supervisory duties under Circular 230, contrary to what the AICPA claimed, as the duty extends to all employees involved in tax preparation, regardless of the preparer's status.

Finally, the court was unconvinced that the Program would cause confusion among the AICPA members' customers as to the credentials of participating preparers, stating that this fear was far too speculative to support a claim of injury. As none of the AICPA's claims offered reasonable ground for believing an injury would arise from the Program, the court held that the AICPA did not have standing to sue, and dismissed the case.

For more on the Registered Tax Return Preparer program and its subsequent shut down, see Parker Tax ¶ 271,127. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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